Are you fed up of hearing about changes to portfolio BTL lending? We suspect you probably are. Over the last few weeks, you’ll have no doubt received many communications from lenders providing details of their new Portfolio BTL proposition, all with slight variations but nevertheless doing much the same thing.
At the Furness, we have chosen to do things a little differently. For us, Portfolio BTL lending is nothing new. We have been active in this market for a number of years, and have consistently underwritten these applications with great care. We have always recognised that the risks with portfolio lending are enhanced, and that the subject property can’t be viewed in isolation of the background portfolio. If you’ve used us in the past, you’ll have seen this approach in operation.
At the core of our approach is the belief that this type of lending should not be formulaic, and that each application should be assessed by an experienced underwriter who is able to apply a common-sense approach. The key thing that an underwriter will look to determine is this: ‘is this mortgage affordable, both now and in the future’. If that assessment can be robustly made, then applying a formula for income coverage is simply unnecessary. This is our single biggest USP, and we like to think it makes our approach rather special. It is particularly useful for higher level earners (but obviously will work against those with tight affordability).
We have taken time to look again at our approach, and have sought to make the minimum possible changes. We believe that our updated approach is therefore as simple as it can be, and is consistent with both the new rules and good practice. Now that the initial flurry of communications from other lenders has died down, we are ready to reveal our approach.
We do not apply a formal ICR as we assess every application on affordability (Mirroring our non-portfolio BTL criteria). We would anticipate that the subject property at least meets 125% rental coverage at the pay rate however. This means that for higher earners, we can often lend at a higher level than most of our competitors can manage.
We have maintained one product range for all BTL lending. We do not price applications from portfolio customers at a higher level.
We do not restrict the maximum LTV for the requested loan for portfolio customers: we lend to 75% LTV regardless of application type.
Whilst we have set a maximum LTV across the background portfolio of 65% (excluding the subject property being mortgaged to us) this is an average, and individual properties may exceed this provided that the overall 65% LTV requirement is met.
We have set a minimum rental coverage of only 140% for the background portfolio, and this is calculated at pay-rate. Again, this can be averaged, and individual properties may fall below this level so long as the minimum rental coverage requirement is met overall. For customers with particularly strong affordability, we may be willing to drop below this coverage ratio.
For the assessment of both the background portfolio and the subject property, there is no enhanced rental coverage requirement for higher rate tax payers: one simple calculation for all applications.
A Portfolio landlord is defined as someone who will have 4 or more BTL properties when the current application completes. Properties held within a limited company are included in these totals.
We require a minimum income of £40k pa per application (not per applicant) and this cannot include rental income.
We will provide up to 5 BTL mortgages to a customer, totalling no more than £750k of borrowing. This can include one holiday let mortgage.
We require that the overall portfolio (including the property we are mortgaging) is no greater than 10 mortgaged properties, with total borrowing of no more than £1M.
We generally assume that the subject property will generate an rental coverage of at least 125% at pay-rate. As with the assessment of the background portfolio, we may be able to drop below this where there is particularly strong affordability from other income.
We expect at least one applicant to be able to have been a landlord for at least 2 years.
We realise that there are a wide variety of requirements amongst lenders and we have sought to keep our approach as simple as possible. Where additional items are needed, we will provide standard template forms to reduce the burden on the intermediary and their client.
Over and above standard processing requirements, the only additional items we need are:
An assets & liabilities statement (which can be downloaded here)
A copy of the AST for each background BTL property
We may very occasionally need a business plan or a cashflow statement, and will advise you of this at underwriting stage if needed. We expect that we won’t need this in most cases.
We are sure that the market position for this class of customer will continue to evolve, and we will evolve our approach with it. Nevertheless, we believe that the approach set out above is clear and easily followed, and we are ready and open for business, with a strong appetite for this class of lending. Our experience has shown that these are good borrowers for us, and we are keen to see an increased flow of business in this area.
Don’t forget that we lend to age 80, and can take a common-sense approach with aspects of cases which create some complexity. This applies to portfolio BTL customers just as much as any other type of customer.
If you’d like to talk to us about any enquiries which you may have, give our Broker hub a call and speak to a BDM on 0800 988 1561